News

content

TransDigm makes quick return to US high yield bond market for $750M deal

TransDigm is back in the market with a $550 million offering of eight-year (non-call three) subordinated notes, and a $200 million add-on to the recently priced 6.25% secured notes due 2026, sources said. Pricing for the deal is expected today, Feb. 1.

Joint bookrunners for the secured debt are Morgan Stanley, Credit Suisse, Citi, Barclays, RBC Capital Markets, Credit Agricole, and KKR Capital Markets. Bookrunners for the senior subordinated paper are Morgan Stanley, Credit Suisse, KKR Capital Markets, Citi, Barclays, and RBC Capital Markets. Existing ratings are B+/Ba3 for the secured debt, and B–/B3 for the subordinated notes.

Proceeds of the new subordinated notes are earmarked to redeem the borrower’s $550 million outstanding of 5.5% notes due 2020, according to an offering memorandum. The funds raised from the tack-on secured bonds will support the company’s acquisition of Esterline Technologies.

TransDigm earlier this week placed the initial print of the 6.25% secured notes due 2026 supporting the Esterline buy, as a $3.8 billion transaction. Final terms were set at par. The offering was initially proposed to include $1 billion of senior subordinated notes, which were subsequently removed, with that amount steered to the secured tranche and an additional $100 million tacked on. These notes closed the session on Thursday, Jan. 31, at 101.75, yielding 5.85%, trade data show. Trades recorded this morning show the bonds changed hands at 101.25, for a 5.96% yield.

TransDigm is a designer, producer, and supplier of highly engineered aircraft components. – Jakema Lewis

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

Europe CLO Market Kicks Off 2019 with €509M Deal

Europe’s first collateralized loan obligation vehicle of the year priced on Friday. Barclays printed an upsized, €509 million CLO for Credit Suisse Asset Management. The triple-A tranche of debt priced wider than the last anchored deals of 2018. The deal was upsized by roughly €100 million.

Activity in Europe’s CLO new-issue market should continue to pick up considerably, as details of four new deals emerged last week from CELF Advisors, Guggenheim, ICG, and Blackstone/GSO, with the latter also releasing price guidance today.

CLOs are special-purpose vehicles set up to hold and manage pools of leveraged loans.

The special-purpose vehicle is financed with several tranches of debt (typically a ‘AAA’ rated tranche, a ‘AA’ tranche, a ‘BBB’ tranche, and a mezzanine tranche) that have rights to the collateral and payment stream, in descending order. In addition, there is an equity tranche, but the equity tranche usually is not rated.

CLOs are created as arbitrage vehicles that generate equity returns via leverage, by issuing debt 10 to 11 times their equity contribution.

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

Free Webinar: Global High Yield Markets Opportunities, Pitfalls in 2019

webinar imageS&P Global Market Intelligence and LCD are excited to present on Tuesday, Jan. 29 a complimentary webinar on the  global high yield market: Opportunities and Pitfalls in 2019.

You can register for the event here.

Topics covered in this webinar include

  • An overview of 2018 U.S. high yield performance
  • Historical perspective on the late 2018/early 2019 downturn
  • Is the distress ratio signaling a recession? How reliable is this predictor?
  • Deal flow in the face of rising credit risk: 2019 outlook in the U.S. and European high yield markets
  • Risks and opportunities in today’s global high yield market
  • Ratings performance
  • Multi-notch downgrades
  • Fallen angel risk
  • Distressed and default outlook

Date
Jan. 29, 2019

Time
10-11 am EST

Speakers

Marty Fridson
CIO
Lehmann, Livian, Fridson Advisors LLC

Diane Vazza
Managing Director, Head of Global Fixed Income Research
S&P Global Ratings

  Nicholas Kraemer, FRM
  Senior Director, Global Fixed Income  Research
S&P Global Ratings

John Atkins
Director, Leveraged Commentary & Data
S&P Global Market Intelligence

Luke Millar
Director
S&P Global Market Intelligence

Ruth Yang
Managing Director, Leveraged Commentary & Data
S&P Global Market Intelligence

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

After Deal-Free December, US High Yield Bond Issuance Takes Off

Following a rare month with no U.S. high yield debt issuance – which exacerbated a broader downturn in U.S. high-yield primary volume over the tail-end of 2018 – speculative-grade bond issuers are moving off the sidelines against a steadier financial-markets backdrop, capitalizing on pent-up investor demand for fresh prints and the resulting improvement in their pricing leverage, LCD data shows.

The week ended Jan. 25 was on track to produce the largest new-issue market weekly volume since early-August 2018, with more than $6 billion in supply slated to clear. The lion’s share—$4.2 billion—was priced in a single session, which saw each transaction upsized, and finalized with an issuer-friendly yield. A strong appetite for new debt helped reverse a wave of price widening recorded for the U.S. arm of the asset class during the final quarter of 2018, which saw buysiders and issuers alike proceed with caution among price slides in equities and crude oil, large outflows from high-yield funds, and increasing trade tensions.

Tenet Healthcare on Jan. 22 raised $1.5 billion of 6.25% secured second-lien notes due 2027 at the tight end of talk, after doubling the size of its deal, and Vistra Energy printed $1.3 billion (up from $700 million) of 5.625% notes due 2027, at the midpoint of circulated guidance. That same day, Albertsons Cos, boosted its pitch by $100 million, selling $600 million of 7.5% notes due 2026, and MGM Growth Properties placed $750 million of 5.75% notes due 2027, after upping the offering size from $500 million. Both transactions cleared at the tight end of guidance.

So far in January, no deals were printed at the wide end of price guidance or outside of the announced talk range, an indicator of healthy market demand. Six of the 10 deals were priced at the firm end of guidance, with the balance printed at the midpoint of talk.  

In contrast, in the fourth quarter, just 38% of the new issues cleared syndicate at the firm end of price talk ranges. Five issues priced at the wide end of talk or outside the announced range, accounting for nearly one-quarter of the total offerings. – Jakema Lewis/John Atkins

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

As leveraged loans gobble up market share, all-important debt cushion grows thin

debt cushion

Two straight years of unprecedented leveraged loan issuance by U.S. corporations and private equity shops – often at the expense of the fixed-rate high yield bond market – has whittled away the subordinated debt tier that can buoy recoveries for investors in cases of default.

Indeed, in 2018, a staggering 79% of U.S. speculative-grade debt issuers last year obtained financing solely from the reliably accommodating syndicated loan market (as opposed to structuring a deal with both loans and bonds). That’s the highest reading since LCD began tracking this data in 2007, and is up from 70% in 2017.

With the recent activity, the share of the currently outstanding leveraged loan universe – $1.15 trillion – comprising a loan-only structure has grown to a record 27%, according to LCD. This evaporation of the subordinated debt cushion matters.

As LCD detailed in its recent recovery study, the bigger the debt cushion in a deal’s capital structure, the better the recoveries for debtholders in cases of default (the cushion is calculated as the share of total debt that is subordinated to the instrument being assessed).

For example, for loans with a very substantial debt cushion (more than 75%), the average discounted recovery was 94%, according to LCD’s analysis of data tracked by LossStats. The lower the cushion, the lower the recovery. A cushion of 26–50% resulted in an average recovery of 73%, for instance.

Of course, recoveries and leveraged loans have been topics of considerable interest lately as loosely structured covenant-lite issuance has taken full root in the loan market, and amid signs that an already aged credit cycle might be coming nearer to an end.

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

 

content

S&P: Leveraged Loan Recoveries Have Dipped While High Yield Increases

Since 2010, post-default recoveries for U.S. bank debt have often been below their long-term averages, even as bonds have experienced elevated recoveries. Financing conditions have been favorable to highly leveraged companies, with investor demand for leveraged loans supporting growing issuance, tightening spreads, and debt structures with smaller debt cushions and fewer covenant protections.

These favorable conditions have helped support bond recoveries in recent years, as has the prevalence of distressed exchanges, which have tended to benefit the recoveries of bonds rather than loans. These factors could contribute to shrinking recoveries once default rates rise.

In short:

  • Average recovery rates for bank debt (which includes term loans and revolvers) have fallen by two percentage points since 2010, to 72%, as declining recovery rates for second-lien term loans have weighed on term loans overall.
  • In contrast, bonds and notes have experienced above-average recoveries of 51% over the same period as the prevalence of distressed exchanges has supported bond recoveries.
  • The long-term discounted average recovery for bank debt is 73.9%, while bonds and notes have recovered 39.2%, on average.
  • For first-lien term loans, shrinking debt cushions, an increase in covenant-lite, and rising leverage are likely hampering recoveries, and this trend could become more pronounced for recoveries of senior and subordinated debt when the cycle turns.

This analysis is courtesy LCD’s colleagues at S&P Global Fixed Income Research, Diane VazzaNick W. Kraemer, and Evan M. Gunter. The complete analysis is available here.